Impact Investing

54 Pages Posted: 20 Dec 2015 Last revised: 6 Feb 2018

Brad M. Barber

University of California, Davis

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Ayako Yasuda

University of California, Davis - Graduate School of Management

Date Written: November 30, 2017

Abstract

We show that investors derive utility from non-pecuniary characteristics of investments by studying impact funds, defined as venture or growth equity funds with dual objectives of generating financial returns and positive externalities. Impact funds earn internal rates of return that are 4.7% less than traditional VC funds in reduced form regressions. Based on estimates of a willingness to pay (WTP) model derived from a utility framework, investors accept 3-4% lower returns for impact funds. Development organizations, banks, and public pension funds have the greatest WTP; endowments and private pensions have negligible WTP. Europeans and UNPRI signatories have larger WTPs. Mapping WTP to investor preferences for and hindrances against impact investing, we find that mission-oriented objectives and political pressure to invest locally increase the WTP for impact and legal restrictions (e.g. ERISA) decrease it.

Keywords: venture capital; private equity; impact investment; socially responsible investment; UN principles of responsible investment (PRI); sustainable investing; corporate social responsibility; local bias; banks; public pension funds; willingness to pay; random utility over externalities

JEL Classification: G11, G21, G22, G23, G24, G28, H41, M14

Suggested Citation

Barber, Brad M. and Morse, Adair and Yasuda, Ayako, Impact Investing (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2705556 or http://dx.doi.org/10.2139/ssrn.2705556

Brad M. Barber

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Adair Morse

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ayako Yasuda (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-0775 (Phone)
530-752-2924 (Fax)

HOME PAGE: http://www.ayakoyasuda.com

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